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More Pain, No Gain for Greece: Is the Euro Worth the Costs of Pro-Cyclical Fiscal Policy and Internal Devaluation?

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  • Mark Weisbrot
  • Juan Antonio Montecino

Abstract

This week the Greek government reached agreement with the European authorities and the IMF for 130 billion euros in lending, as part of a new adjustment package to replace the current IMF program that began in May of 2010. Although the agreement should allow the government to avoid default in March, there are grave doubts as to whether the agreed upon program will lead the country to a point where it returns to growth, has a sustainable debt burden, and can borrow from private markets. The most important problem with the commitments that Greece has made in the past two years is that its fiscal policy is pro-cyclical – that is, the government has been, and is committed to, tightening its budget while the economy is in recession.

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Bibliographic Info

Paper provided by Center for Economic and Policy Research (CEPR) in its series CEPR Reports and Issue Briefs with number 2012-07.

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Length: 24 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:epo:papers:2012-07

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Keywords: greece; euro; europe; devaluation; procyclical; countercyclical; imf;

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  1. Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," Research Department Publications 4485, Inter-American Development Bank, Research Department.
  2. Mark Weisbrot & Rebecca Ray & Juan Montecino & Sara Kozameh, 2011. "The Argentine Success Story and its Implications," CEPR Reports and Issue Briefs 2011-21, Center for Economic and Policy Research (CEPR).
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Cited by:
  1. Matsumoto, Makiko & Hengge, Martina & Islam, Iyanatul, 2012. "Tackling the youth employment crisis : a macroeconomic perspective," ILO Working Papers 470297, International Labour Organization.
  2. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Provocările politicii monetare
    [Monetary policy challenges]
    ," MPRA Paper 50261, University Library of Munich, Germany, revised 28 Sep 2013.

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